Goodwill Valuations

In the methods used for small business valuations, goodwill valuations are not directly calculated. Goodwill valuations can be derived by subtracting the value of the tangible assets (eg. plant & equipment and stock) from the business valuation figure.

In small business valuations there is often a discrepancy between the inherent business value and the value of the net tangible assets. This discrepancy is the value of the goodwill and intangible assets.

Banks and financial institutions tend to be cautious when it comes to lending for the purpose of goodwill or intangible asset purchases.

There are many issues unique to goodwill valuations, which should be dealt with in order for the business owner to successfully sell their business for the best outcome.

A few of these issues raised in goodwill valuations include assurance that the intangible asset is legally protected, the lifespan of the intangible asset, comparisons with competitors, the level of engagement of the current owner necessary to maintain the current levels of goodwill and the predicted future earning and how that could attribute to the value of the intangible assets.

The appointment of an experienced advisor will ensure that goodwill valuations are carried out correctly and accurately.

Goodwill valuations can improve the understanding of a business's value drivers and is a useful tool in preparing a business for sale.